Oil and gas terms and definitions


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Oil and gas terms and definitions

  1. 1. OIL AND GAS TERMS AND DEFINITIONSAACCREDITED INVESTOR-A person or institution deemed capable of understanding and affording thefinancial risks associated with the acquisition of unregistered securities.The SEC recognizes the following parties as accredited:1. An individual who alone, or with spouse, has a net worth of over $1 million.2. An individual who alone had income in excess of $200,000 in each of the past two years (or with aspouse, in excess of $300,000 in each of the past two years) and has a reasonable expectation of doing aswell in the current year.3. A financial institution such as bank, broker / dealer, insurance company or business developmentcompany.4. Any director, officer or general partner of the issuer.5. A trust or business partnership, with assets in excess of $5 million, that wasn’t formed for the purpose ofacquiring the unregistered securities.6. Any entity wholly owned by accredited investors.ACIDIZING -A technique for increasing the flow of oil and/or gas into a well. Hydrochloric acid ispumped into the oil-bearing rock. The acid dissolves limestone in the producing zone enlarging pores andflow into the well bored with fewer restrictions.BBARRELS OF OIL - 42 U.S. gallons of oil at 60 degrees Fahrenheit.BIT - A bit is the drilling tool that bores or cuts into the earth. There are two basic types: the cable tool bitwhich moves up and down the hole, striking the bottom, chipping away the rock, and the rotary bit whichrevolves to grind the rock. The rotary is the modern technique used in most drilling operations.BLOWOUT - An unexpected violent eruption of oil and gas from a well during the drilling phase ofoperation. This happens when high-pressure gas is encountered and the proper precautions have not beentaken. The initial eruption is followed by an uncontrolled flow of fluids from the well.BLOWOUT PREVENTER - A “BOP” is a large, specially designed valve that is mounted on top of thewell during the drilling and completion stages of operation. The operator can close this valve to stop theflow of oil or gas in case of emergency.BOTTOM HOLE PRESSURE - The reservoir pressure at the bottom of the well. When the well isflowed, a decline in pressure related to the amount of oil production will give an engineer informationregarding the reserves of the well.CC & E - Well completion and equipping cost.Cash Flow - The amount of cash available for distribution to the Investor for the period during which theDriller determines that a distribution shall be made after (i) the payment of all expenses and (ii) theestablishment of such reserves deems reasonably necessary.CASING - Steel pipe, which screws together and is lowered into the hole after drilling is complete. It isused to seal off fluids and keeps hole from caving in.
  2. 2. CASING POINT - When the well has been drilled to its objective depth, the operator is faced with a veryimportant decision, whether to commit additional dollars to “setting pipe” and attempt a completion or toabandon the well as non-commercial. The success or failure of many companies has been dependent onthese decisions.CEMENT OR “SET PIPE” - A process whereby cement is pumped into the hole between the walls of thehole and the outside of the casing. Upon hardening, the cement holds the pipe in place and prevents fluidmovement in the hole.COMMERCIAL WELL - A well, which is capable of producing enough products to pay for itself andgive a profit to its owners.COMPLETION - A general term referring to all activities necessary to put a well on production after ithas been drilled to casing point.CRUD OIL - Oil in its natural state of composition. :”Crude” is classified according to its physicalproperties: a. Paraffin Based, b. Asphaltic Based, c. Mixed Based.CUTTING OR SAMPLES - Pieces of rock cut out of the formation by the bit and circulated to the surfaceby the mud. Geologists study this rock for signs of oil and gas as the well is drilled.DDEPLETION ALLOWANCE - An allowance granted on taxable income from oil and gas by the Federaland most State Governments. The current Federal rate is 15% of gross income. The law is rather involvedand a tax specialist should be used when computing the tax free portion of income. This information issupplied to each partner prior to filing his income tax returns on April 15th of each year.DEPOSIT - An accumulation of oil, gas or other minerals, which is capable of production.DEVELOPMENTAL WELL - A well drilled to a known production formation in an existing oil field.DISCOVERY WELL - An exploratory well that encounters production in a previously unknown deposit.DIVISION ORDER - A contract with a purchaser of oil and gas, which directs the payment of oil and gasrevenues to the interest owner of a well.DRILLING - The act of boring into the earth.DRILLING RIG - The equipment used to bore into the earth. There are two types: a. Rotary b. Cabletools. The rotary type is more modern and efficient.D&A - Dry and abandoned.D&T - Drilling and well test cost.DRY HOLE - Any oil and gas well drilled for the purpose of producing oil or gas but which is not aproducing well.EELECTRIC LOG - An electrical survey made on uncased hole. A special tool is lowered into the hole,which ejects an electrical current into the rock and its resistance to the current. The data from the survey isused by the geologist to determine the nature of the rock and its content.
  3. 3. EXPLORATION - A general term referring to all efforts made in the search for new deposits of oil andgas.FFLOWING WELL - A well capable of producing oil or gas by its own energy without the aid of amechanical pump. Normally a pump is put on the well after the pressure reduction inhibits the rate ofproduction.FRACING - The process of pumping fluids into a productive formation at high rates of injection tohydraulically break the rock. The “fractures” which are created in the rock acts as flow channels for the oiland gas to the well.GGAS WELL - A well that produces natural gas, which is not associated with crude oil.HIIDC - (Intangible Drilling Costs) All cost incurred in drilling a well other than equipment or leasehold.These expenses are 100% tax deductible even if the well is productive.IP - (Initial Production) Production from a well is generally broken down into three categories: a. Flush orInitial b. Settled c. Stripper. It is important for investors to realize that a well cannot maintain the flow ratesit made during the first stages of its life.IMMEDIATE FAMILY - Means the spouse of an individual and the parents, children and grandchildrenof the individual or his spouse. An adopted child will be treated as the child of his adoptive parent orparents if (but only if) he was adopted before he reached 21 years of age.JKLMNNON-COMMERCIAL - A well that is not capable of producing enough oil or gas to pay for the drilling.NRI - (Net Revenue Interest) That percent of the production revenue allocated to the working interest afterfirst deducting proceeds allocated to royalty and overriding interest.O
  4. 4. OIL - A liquid hydrocarbon. (See “Crude oil”)OIL GRAVITY - The most widely used indicator of crud oil’s worth to the producer is its API gravity.Normally, the price, which a producer receives for his oil, depends on its gravity, the less dense oils (higherAPI gravity) being the most valuable. This price schedule is based on the premise that the lighter oilcontains higher percentages of the more valuable products such as gasoline. API Gravity (degrees) =(141.5/sp.gr.) - 131.5.OIL & GAS LEASES - A contract between an oil operator and a landowner, which gives the operator theright to drill for oil and gas on his property for a consideration. It is simply a “ticket to hunt”.ON THE PUMP - An expression that means a well is incapable of flowing and that the oil is beingpumped to the surface by a “pumping unit”.OPERATING EXPENSE - The expenses incurred through the operation of producing properties.OPERATOR - ROPA Exploration, Corp. / 3-R Drilling and Services.PPAYOUT - When the costs of drilling, producing and operating have been recouped from the sale ofproducts on a well.PERMEABILITY - A measure of the resistance of rock to the movement of fluids. Rocks may have holesor void spaces in them (porosity), but if these holes do not connect, the permeability can be drasticallyreduced.POROSITY - A measure of the relative volume of void space in rock to the total rock volume. Thesespaces or pores are where oil and gas accumulate; therefore, a formation containing a high percentage ofporosity can contain more hydrocarbons.PROVEN RESERVES - Oil and gas, which has not been produced but has been located and isrecoverable.PUMPER - An employee of an operator who is responsible for gauging the oil and gas sold off the leaseshe has been assigned and who is also responsible for maintaining and reporting the daily production.QRREWORK OPERATIONS - Any major operation performed on a well after its completion in an attemptto restore or improve its ability to produce.SSALT WATER DISPOSAL WELL - Many wells produce salt water while producing oil. The disposal ofthis water is a problem to an operator because of pollution. The best solution to the problem is to pump thewaste back into a formation that is deep enough not to pollute shallow water sands. Many stripper wells,which are no longer commercial, are converted for this purpose.SECONDARY RECOVERY - A broad term encompassing any method of extracting oil from a reservoirafter a well or field has exhausted its primary production.
  5. 5. SEDIMENTARY ROCKS - Rock is generally classified in one of three categories: a. Sedimentary; b.Igneous; c. Metamorphic.SETTLED PRODUCTION - The second phase of production in the producing life of a well. (See IP).STRIPPER WELL - The final state in the life of a producing well.STRUCTURAL TRAP - A fold or break (or both) in the earth’s crust, which creates an impervious trapfor oil and gas. Oil will migrate underground through rock until it is “trapped”.SUBSCRIPTION - The execution and delivery to ROPA of a properly executed set of ExecutionDocuments by a potential Investor and the tender by such Investor of the required cash payment for theInterest(s) which he wishes to purchase.SURFACE PIPE - Pipe which is set with cement through the shallow water sands to avoid polluting thewater and keep the sand from caving in while drilling a well.SWAB - A tool, which is lowered down the pipe on a wire line. The “swab” is then pulled out of the hole.As it travels up the pipe, rubber elements expand so that the fluid in the pipe is trapped above the swab andpushed to the surface. This operation is necessary when the formation pressure is not high enough to blowthe fluids in the pipe to the surface.TTANK BATTERY - A group of tanks at the well site used to store oil prior to sale to a pipeline company.TESTING - When each new well is completed, a series of tests are run on each well. The various testsused to estimate the daily deliver ability, payout, and reserves.TUBING - Small diameter pipe which is installed in the casing. Oil is produced through tubing because itincreases the viscosity of fluid and a well’s flow capabilities.TURNKEY CONTRACT - A contract in which an operator or drilling contractor agrees to furnish alllabor and materials necessary to drill a well to a certain depth or stage of completion for a specified sum ofmoney. The operator or contractor assumes all of the responsibility and risks involved in completing theoperation.UVVISCOSITY - The resistance of fluid to flow. A high viscosity fluid will not flow as easily as a lowviscosity fluid (Mud will not move as easily as water).WWATER FLOODING - A secondary recovery method for the production of oil from a formation. Oil willfloat on water. When water is injected into the some formations, the oil will float or be washed to thesurface. Thereby., increasing the amount of production from a well or field. Some formations will not reactto this type of stimulation.WILDCAT - A well that is drained one or more miles from a proven well.
  6. 6. WORKING INTEREST - Oil and gas Working Interest. The operating interest under an oil and gas leaseentitling the holder, at its expense, to conduct drilling and production operations on the leased property andto receive the net revenues from such operations.WRITE-OFFS - That portion of an oil investment, which is deductible for tax purposes. All intangiblesare deductible.